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FAC1502 EXAM assignment 4 2024 | Due 29
October 2024
s
1. What is the primary purpose of financial accounting?
• A) To assist management in decision-making
• B) To provide information for internal users only
• C) To prepare financial statements for external users
• D) To ensure compliance with tax regulations
Rationale: Financial accounting is primarily aimed at providing financial information
through statements for external users such as investors, creditors, and regulators.
2. Which of the following is an example of a current asset?
• A) Buildings
• B) Equipment
• C) Cash
• D) Long-term investments
Rationale: Cash is considered a current asset as it is readily available to meet short-term
obligations.
3. In a double-entry accounting system, every transaction affects:
• A) Only one account
• B) Two accounts
• C) Three accounts
• D) None of the above
Rationale: In a double-entry accounting system, every transaction affects at least two
accounts, maintaining the accounting equation.
4. What is the accounting equation?
• A) Assets = Liabilities + Equity
• B) Assets + Liabilities = Equity
• C) Assets - Liabilities = Equity
• D) Liabilities = Assets + Equity
Rationale: The accounting equation is Assets = Liabilities + Equity, representing the
relationship between a company's resources and claims against them.
5. Which financial statement provides a snapshot of a company’s financial position at a
specific point in time?
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• A) Income Statement
• B) Statement of Cash Flows
• C) Balance Sheet
• D) Statement of Changes in Equity
Rationale: The balance sheet provides a snapshot of a company's financial position,
detailing its assets, liabilities, and equity at a specific date.
6. What does GAAP stand for?
• A) Generally Accepted Accounting Principles
• B) General Accounting and Auditing Procedures
• C) Governmental Accounting and Assurance Practices
• D) Generally Acknowledged Accounting Policies
Rationale: GAAP stands for Generally Accepted Accounting Principles, which are the
standard framework of guidelines for financial accounting.
7. Which of the following is considered a long-term liability?
• A) Accounts payable
• B) Notes payable due in 90 days
• C) Bonds payable
• D) Accrued expenses
Rationale: Bonds payable are a long-term liability as they are typically due beyond one
year.
8. What is the primary focus of managerial accounting?
• A) Historical financial information
• B) Compliance with regulatory standards
• C) Internal decision-making
• D) Preparing financial statements for external stakeholders
Rationale: Managerial accounting focuses on providing information for internal
decision-making and planning.
9. Depreciation is best described as:
• A) The increase in an asset's value over time
• B) The allocation of the cost of a tangible asset over its useful life
• C) The total value of an asset
• D) An expense that reduces revenue
Rationale: Depreciation is the allocation of the cost of a tangible asset over its useful
life, reflecting its usage and wear over time.
10. Which of the following represents a cash inflow in the statement of cash flows?
• A) Purchase of equipment
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• B) Payment of dividends
• C) Issuance of stock
• D) Payment of accounts payable
Rationale: The issuance of stock represents a cash inflow, as it brings cash into the
company from investors.
11. What is the purpose of an audit?
• A) To prepare financial statements
• B) To provide assurance on the accuracy of financial statements
• C) To manage company finances
• D) To file taxes
Rationale: An audit provides assurance on the accuracy and fairness of financial
statements, enhancing their reliability for users.
12. Which method of inventory valuation assumes that the first items purchased are the
first ones sold?
• A) FIFO (First In, First Out)
• B) LIFO (Last In, First Out)
• C) Weighted average
• D) Specific identification
Rationale: FIFO (First In, First Out) assumes that the oldest inventory items are sold
first.
13. In which section of the cash flow statement would you find cash received from
customers?
• A) Operating activities
• B) Investing activities
• C) Financing activities
• D) Non-cash activities
Rationale: Cash received from customers is reported in the operating activities section of
the cash flow statement, as it relates to the core business operations.
14. What is working capital?
• A) Total liabilities minus total assets
• B) Current assets minus current liabilities
• C) Total assets minus total liabilities
• D) Current liabilities minus current assets
Rationale: Working capital is calculated as current assets minus current liabilities,
indicating the liquidity available to meet short-term obligations.
15. Which of the following is an example of a non-operating expense?
FAC1502 EXAM assignment 4 2024 | Due 29
October 2024
s
1. What is the primary purpose of financial accounting?
• A) To assist management in decision-making
• B) To provide information for internal users only
• C) To prepare financial statements for external users
• D) To ensure compliance with tax regulations
Rationale: Financial accounting is primarily aimed at providing financial information
through statements for external users such as investors, creditors, and regulators.
2. Which of the following is an example of a current asset?
• A) Buildings
• B) Equipment
• C) Cash
• D) Long-term investments
Rationale: Cash is considered a current asset as it is readily available to meet short-term
obligations.
3. In a double-entry accounting system, every transaction affects:
• A) Only one account
• B) Two accounts
• C) Three accounts
• D) None of the above
Rationale: In a double-entry accounting system, every transaction affects at least two
accounts, maintaining the accounting equation.
4. What is the accounting equation?
• A) Assets = Liabilities + Equity
• B) Assets + Liabilities = Equity
• C) Assets - Liabilities = Equity
• D) Liabilities = Assets + Equity
Rationale: The accounting equation is Assets = Liabilities + Equity, representing the
relationship between a company's resources and claims against them.
5. Which financial statement provides a snapshot of a company’s financial position at a
specific point in time?
,1|Page
• A) Income Statement
• B) Statement of Cash Flows
• C) Balance Sheet
• D) Statement of Changes in Equity
Rationale: The balance sheet provides a snapshot of a company's financial position,
detailing its assets, liabilities, and equity at a specific date.
6. What does GAAP stand for?
• A) Generally Accepted Accounting Principles
• B) General Accounting and Auditing Procedures
• C) Governmental Accounting and Assurance Practices
• D) Generally Acknowledged Accounting Policies
Rationale: GAAP stands for Generally Accepted Accounting Principles, which are the
standard framework of guidelines for financial accounting.
7. Which of the following is considered a long-term liability?
• A) Accounts payable
• B) Notes payable due in 90 days
• C) Bonds payable
• D) Accrued expenses
Rationale: Bonds payable are a long-term liability as they are typically due beyond one
year.
8. What is the primary focus of managerial accounting?
• A) Historical financial information
• B) Compliance with regulatory standards
• C) Internal decision-making
• D) Preparing financial statements for external stakeholders
Rationale: Managerial accounting focuses on providing information for internal
decision-making and planning.
9. Depreciation is best described as:
• A) The increase in an asset's value over time
• B) The allocation of the cost of a tangible asset over its useful life
• C) The total value of an asset
• D) An expense that reduces revenue
Rationale: Depreciation is the allocation of the cost of a tangible asset over its useful
life, reflecting its usage and wear over time.
10. Which of the following represents a cash inflow in the statement of cash flows?
• A) Purchase of equipment
, 2|Page
• B) Payment of dividends
• C) Issuance of stock
• D) Payment of accounts payable
Rationale: The issuance of stock represents a cash inflow, as it brings cash into the
company from investors.
11. What is the purpose of an audit?
• A) To prepare financial statements
• B) To provide assurance on the accuracy of financial statements
• C) To manage company finances
• D) To file taxes
Rationale: An audit provides assurance on the accuracy and fairness of financial
statements, enhancing their reliability for users.
12. Which method of inventory valuation assumes that the first items purchased are the
first ones sold?
• A) FIFO (First In, First Out)
• B) LIFO (Last In, First Out)
• C) Weighted average
• D) Specific identification
Rationale: FIFO (First In, First Out) assumes that the oldest inventory items are sold
first.
13. In which section of the cash flow statement would you find cash received from
customers?
• A) Operating activities
• B) Investing activities
• C) Financing activities
• D) Non-cash activities
Rationale: Cash received from customers is reported in the operating activities section of
the cash flow statement, as it relates to the core business operations.
14. What is working capital?
• A) Total liabilities minus total assets
• B) Current assets minus current liabilities
• C) Total assets minus total liabilities
• D) Current liabilities minus current assets
Rationale: Working capital is calculated as current assets minus current liabilities,
indicating the liquidity available to meet short-term obligations.
15. Which of the following is an example of a non-operating expense?
